Zeti tries to rise above Malaysia’s creeping crisis
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Zeti tries to rise above Malaysia’s creeping crisis

Malaysia’s political leaders are besieged by the fall-out from the 1MDB scandal. A whispering campaign is trying to drag in the hitherto-unsullied, long-serving central bank governor, Zeti Akhtar Aziz. She staunchly defends her reputation, but is far more concerned about the potential disruption to her long-term economic planning.


For Zeti Akhtar Aziz, the venerable governor of Bank Negara Malaysia (BNM), the country’s central bank, these should be the best of times.

Deep into her last year of what will be, by her retirement next April, 16 years at the helm of BNM, it should be a period of reflection for the magisterial Zeti, to accept the congratulations of a grateful nation to this 68 year-old trailblazer of modern Asia’s economic miracle.

“It has been an exciting time, doing a job I love for a nation I love,” she tells Euromoney in mid-September in Kuala Lumpur.

And what a trail she blazed. One of the few women to run a central bank anywhere, Zeti was also the first female bank governor of a mostly Islamic nation, taking over a BNM in turmoil as the 1990s’ Asian Financial Crisis engulfed Malaysia.

On her watch, BNM can claim, and Zeti often has, to have become Asia’s most independent and transparent central bank, albeit one she took over in 2000 after doing the bidding of a politician – the dictatorial former prime minister Mahathir Mohamad – by implementing capital controls to preserve the ringgit.

That ‘shut-the-door’ policy would briefly make Malaysia an international pariah, no favourite of markets or of multilaterals such as the IMF. But Malaysians argue it spared them the chaos that consumed neighbours Thailand and Indonesia, helping boost the economy by an average 5% annually since 1998 to almost double its size in a generation.

In 2005, with Mahathir three years retired and the financial system rebooted, Zeti lifted the ringgit peg, in effect marking the end of the crisis. It was a feat that helped win her Euromoney’s coveted central banker-of-the-year award that year.

Now transformed into a market darling, Zeti has snagged gong after international gong as Malaysia wins back the confidence of investors and the ringgit much of its pre-1998 strength to be one of the world’s stronger currencies. Her pièce de resistance as a central banker came in a 2009 act of parliament when Zeti secured BNM’s independence from the government, no mean feat in a country not known as a model liberal democracy.

“We had earned it,” she says. “I wanted to legislate it for the next generation…we strengthened the checks and balances, the transparency.”

So it has been quite a ride. And after all that, she could be excused a pause this final year to accept praise for public service well done.

Except that this last year has been anything but agreeable for Zeti.

The currency she has so carefully tended has dropped 30% this year, to be Asia’s worst performer. The cruellest cut of all, perhaps, is that the ringgit has fallen beyond even the level that Zeti had locked it to the dollar at in 1998, when she was acting BNM governor. That fall has chewed into BNM’s foreign reserves, which had risen 700% on her watch to more than $155 billion in 2011. They have plummeted to $95 billion, the lowest since 2009. Growth has slowed, the bond market has slumped, the IPO roster has tanked and the ratings agencies are circling, threatening downgrades.

It has also been a tough time personally for Zeti. Hidden hands have accused her and her family of corruption, and she is being traduced in a vicious whispering and social media campaign that seems aimed at removing her from office ahead of time.

Instead of contemplating the books and the advisory and lecture circuit that a gracious retirement might beckon, Zeti now meets with lawyers to protect her. Far from being lavished by a thankful nation, in many circles, particularly those close to prime minister Najib Razak and his controversial wife Rosmah, Zeti has almost become a hate figure, certainly one of ridicule.

How did Malaysia come to this?

The short answer is 1Malaysia Development Berhad, better known as 1MDB. That’s the scandal-ridden sovereign investment fund that many Malaysians believe is little more than a corrupt slush fund for politicians.

Founded by Najib soon after he came to power in 2009, 1MDB has been poison for Malaysia. It has little obvious commercial activity to service its estimated $12 billion in debt, much of it in bonds rated as junk. They were arranged via massive state-guaranteed issues through Goldman Sachs, which earned an estimated $500 million in fees from the deals.

Amid nagging claims of corruption, mismanagement and shady offshore dealings, which have prompted investigations in six countries, the 1MDB crisis has dragged heavily on the ringgit, adding to the pressures of an economy sputtering under the weight of a commodity bust.

In July, the Wall Street Journal brought the 1MDB scandal directly to Najib’s door, publishing official documents that showed as much as $700 million had moved through 1MDB-linked entities to end up in Najib’s personal bank account.

Najib denies corruption, claiming the money was a donation from a ‘generous’ unnamed Middle Eastern supporter. But many Malaysians are unconvinced about the man they have dubbed ‘Lord of the Ringgits’. Though Najib has dismissed the ‘vile’ reports as ‘political sabotage’ designed to ‘remove a democratically elected prime minister’, he has not pursued libel actions against the WSJ or other media.

Outraged Malaysians have responded by taking to the streets in their divided thousands, with one yellow-clad side – including former PM Mahathir – demanding ‘bersih’ (clean) government while another in red shirts have rallied in support of Najib, exposing ugly racial and religious lines.

Various investigations have been launched into Najib and 1MDB, including a multi-agency task force of the police, the national anti-corruption agency, the attorney-general and Zeti’s central bank. On July 7, bank accounts linked to the matter were frozen.


Once thanked by a grateful nation, Zeti has almost become a hate figure, if not one of ridicule in many circles, particularly those close to prime minister Najib Razak and his controversial wife Rosmah

But as reports circulated that arrest papers had been issued, Najib fought back. Investigations have been suspended and his cabinet purged of wobblers. Other officials probing 1MDB have been promoted away from investigative positions, while two popular newspapers critical of the government have been suspended.

The Sarawak Report, the London-based website that has published many anti-Najib leaks, is now blocked in Malaysia as the government petitions Interpol to arrest its publisher Clare Rewcastle-Brown, the environmentalist sister-in-law of former UK prime minister Gordon Brown. Police are also after Mahathir, once a Najib mentor, now among his fiercest critics.

Politically, Najib seems secure, bolstered by his long-ruling coalition’s 134 seats of Malaysia’s 222-seat parliament. But he has headaches abroad where authorities in Switzerland, Singapore, Hong Kong and the UK are also investigating 1MDB.

In mid-September, Malaysian police arrested a former member of his ruling party as he was about to fly to New York to assist an FBI investigation into suspected money laundering at 1MDB. An anti-corruption unit of Washington’s Justice Department is also reportedly investigating the US dollar transfers to Najib’s accounts, amid claims of money-laundering.

Meanwhile two original members of the Zeti task force have been removed from their posts and a third appears to have been quietened. About the last authority left standing in this systemic purge of 1MDB investigators in Malaysia is Zeti herself, protected by that independence law she pushed to legislate in 2009, enacted a few months after Najib came to power.

To many Malaysians, Zeti is their country’s last best hope.

Greeting Euromoney in her spacious office at the BNM building in downtown Kuala Lumpur, Zeti looks well, even radiant, in her trademark pearls and traditional baju kurung.

As we settle in for a two hour discussion, her small talk seems pointed, as if she is trying to convey a more profound message about these difficult times, perhaps to set down a personal marker.

Her recall of recent trips to international conferences provide an opportunity to underline ‘ethics’ and ‘good governance’. She cites the ‘very good friends’ she ‘very much enjoys’ meeting in the international financial community, who also happen to be prominent for their anti-corruption stance, such as the former governor of Nigeria’s central bank Sanusi Lamido Sanusi and its former finance minister Ngozi Okonjo-Iweala.

The reference to Zeti’s health is well chosen, and she doesn’t mind elaborating, for part of the whispering campaign being waged against her is that she recently suffered a heart attack and will need to depart BNM for ‘health reasons’.

She laughs. “They spread all sorts of things about me, and all of them are not true,” she says. “It’s very, very unfortunate, yes, but we press on.”

The remark, and Zeti herself, call to mind the former UK prime minister Margaret Thatcher; the regal bearing, the certainty and calm resolve, the hair. Unsurprisingly, she has been dubbed ‘The Iron Lady of Banking’ in Malaysia. “We do what we believe is right and what is in the interests of our country,” she insists. “I’ve never been told to get out.”

Such is the febrile atmosphere in Malaysia surrounding 1MDB that even Zeti’s telling of a seemingly innocent anecdote about a BNM project that didn’t work out seems pregnant with contemporary comparison. She uses the term ‘taskforce,’ which happens to be the term du jour to describe the stalled investigation into 1MDB.

“There were those who didn’t believe that it shouldn’t progress,” she says. “I was never told what the reason was but perhaps there was a lack of appreciation that the intention was always positive.”

Even discussing a personal passion at the bank, developing leadership, can seem as if she’s hinting at a wider point.

“I have a term – square one – meaning everything you worked for, some agenda, project or policy, and then you get devastated when developments make it go back to square one. You are having to start all over again and it requires unwavering perseverance and determination.”

So, is Malaysia enduring a ‘square one’ moment now?

No, Zeti says, before adding “but I can tell you there have been many of those, outcomes which appear to be great successes, they involve demoralising and devastating moments when you are brought to square one and you are set back so much it is even worse than the original position, that you have taken steps backwards.”

Euromoney asks her, as a self-styled independent central banker, how the embattled prime minister Najib, who is also the finance minister, has performed as an economic manager. She stops for a long, thoughtful pause before answering.

“Well, if you look at the outcome of our performance, it is good…the rationalisation of (food and fuel) subsidies, the implementation of the GST, so the revenue base of the government would be broadened, because it was so narrow, dependent on income and corporate tax, and oil revenues. This was not a sustainable situation.”

Najib also gets Zeti’s tick for the near-halving of Malaysia’s fiscal deficit to 3.2%. “We told the government that they had the breathing space to do that. And they did the fiscal reforms, the structural reforms, which are very difficult to do.”


 They spread all sorts of things about me, and all of them are not true. It’s very, very unfortunate, yes, but we press on

Zeti Akhtar Aziz

She says Najib has honoured the BNM’s independence, and has never sought to interfere in the central bank’s activities. And nor, she insists, has he or his office told her to leave the BNM, as many Malaysians believe.

“I’ve never been told that I perhaps might want to move onto another position, none, no such overtures have been made to me. But, of course, there are times when I did feel very uncomfortable but…there were slanderous allegations that were made.”

These allegations cause a deep hurt to someone who says she has devoted much of her life to making her country better. “It’s really very difficult and I was advised by lawyers and so on that those, if you take it to court, it will take years and it will be highly costly.”

Her formal retirement hasn’t been formulated yet but she confirms she will stay on until her term ends next April. She denies her decision is motivated by the recent attacks on her. “Not at all,” she insists. “That was the agenda long before these things unfolded.”

She adds: “It’s a five-year term and this term will complete on April 30. I have done everything that I wanted to do. There’s tremendous more work to be done but what I had planned and hoped to have done, I mostly have done.”

She seems to confirm widespread rumours that she did contemplate stepping down early. “I decided that I will stay with the bank because, if there were any issues, I would like to hand over to my successor a clean slate.

“I did not want him or her to be bogged down by cleaning up any problems they have caused so I made that decision that I would stay whatever the cost to me personally, that I would stay to do the job..”

So who are the plotting, hidden ‘they,’ such as the Malaysia-centric blog ‘From the Eleventh’ she refers to?

“Right now, we do not know who they are,” she says. “We have some ideas, follow-up leads as to who they are, but they have been anonymous so far. We will seek to identify who they are and take legal action against them.”

Zeti says she is not alarmed by the sudden drop in Malaysia’s foreign reserves, which have slumped from $127 billion a year ago, around when markets began noticing 1MDB’s travails, to a current $95 billion.

“We’ve seen them drop to about $80 billion during these episodes,” she says, citing the financial turmoil of the late 2000s that Malaysia comfortably saw off. “We have built it and it represents a buffer to deal with situations like this. I would be alarmed if we are not having growth.”

Except she’s not quite correct on reserves. According to BNM’s own data, Malaysia’s reserves rose steadily through the 2000s to reach $80 billion by November 2006. That was then enough to cover 8.2 months of retained imports and six times Malaysia’s short-term external debt. Reserves continued to climb after 2006, peaking at $141 billion in 2011, equal to a healthy 9.5 months of retained imports and a comfortable 4.3 times Malaysia’s short-term external debt, very comfortable by world standards.

The current slump to $95 billion equals 7.3 months of retained imports, higher than optimal IMF norms, but a modest 1.1 times Malaysia’s short-term external debt, a far cry from the generous buffer of 2006 and even as recently as 2011.

“No, it is not a crisis,” she claims. “We’ve seen it all before and that is the reason why we built up the reserves to levels that are not necessary for a country of our size.

“To have seven months of retained imports is still very good,” she says, citing the 1990s Asian crisis when it dropped to three months. “We are comfortable with it.”

 Zeti in her own words

Over the course of her Euromoney interview, Zeti Akhtar Aziz touched on many subjects other than the current crisis afflicting Malaysia:

On her successor:

“The governor is appointed by the king on the recommendation of the finance minister [PM Najib]. I hope the successor will be from within the bank. My three deputies have grown up in the bank too. They know the bank, they are very driven and they are very capable. I don’t know [who will be my successor], I cannot predict the future.

On the slumping ringgit:

“We should not step backward and peg the exchange rate in these times. You want the flexibility to adjust.”

“Our economy is more diversified than what is perceived by the market. We are less dependent on commodities. The market doesn’t appreciate this. The currency does not reflect our fundamentals.”

On her most recent triumph:

“We signed the agreement for an integrated banking framework [in Asean] recently and that was so challenging. It took five years to get there and I’m glad it got done while I’m still here.”

On the slowdown in global emerging markets: 

“Growth is moderating in the emerging world but there is still growth. Asia remains an important growth centre in the world economy, so to highlight a very adverse economic outlook is not correct. Greater Asia, and Asean in particular, is showing good growth of 4% to 6%. We are not really facing major economic vulnerabilities.”

On China’s economy: 

“I am not alarmed by the development there. Yes, they are slowing down, but to more sustainable levels. To me, this is a period of transition for China…so as not to be destabilizing to the region. Their handling [of the slowdown] has been sound, it has had some costs, some pain has to be endured but over the medium term, it will make their growth more sustainable. They have the fiscal space to do it. The stock market is not everything. China needs to encourage stronger consumption demand. They have over-investment now.”

On the global financial architecture: 

“I would like to see more emerging market representation (at the IMF and World Bank). They are trying very hard to achieve better representation of the global economy given that its configuration has changed so drastically but there’s very slow progress on that. I would also like to see these agencies take a greater role during global financial crises. There’s no other international agencies that can have their role. They need to exercise and perform their role.”

She’s comfortable, too, with the level of the ringgit, which has dropped to 17 year lows, falling below the level she linked it to the dollar at Dr Mahathir’s behest in 1998. It is Asia’s worst performing currency this year.

Launching into a defence of the currency, she notes that the ringgit is only one of 120 global currencies to have weakened against the dollar, that weakness exaggerated by a slump in oil and commodity prices. And then comes the proverbial elephant in the Malaysian room, the 1MDB scandal.

“We have some domestic issues, which have generated uncertainty,” she notes. “And until these domestic issues are resolved, it will have an effect on sentiment that may also contribute, because it is at a period when it coincides with these other global factors.”

She adds: “It is an additional factor, it definitely is. It creates some anxiety and we notice that it does contribute, but the main contributing factor is that it is a global phenomenon from the strength of the dollar.”

Zeti defends her role on the now-disbanded task force looking into 1MDB. “We (the taskforce) comprised the enforcement agencies for the rules and regulations for the rules under our purview. But we (the BNM) are not the enforcement agency for cheating, for criminal breach of trust, for corruption. These are the other agencies.”

She notes: “That task force no longer meets but each agency is still pursuing the work that each one was undertaking.”

In late July, in the wake of the WSJ revelations that around $700 million had been deposited in Najib’s personal bank account, Najib removed then attorney general and taskforce member Abdul Gani Patail, citing ‘health reasons’. Najib appointed a former official of his ruling party, federal court judge Apandi Ali, as the new attorney general.

Zeti notes the personnel changes at the top of the 1MDB investigation taskforce, adding that the BNM completed its investigation and had “made a submission to the new attorney general. In that submission, we recommended for the appropriate enforcement action for the conclusion of our investigation. Right now, the outcome of that is still being awaited.” She declines to comment on what the BNM has recommended.

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She acknowledges that many Malaysians recognise that she is among the last original members of the investigation left standing.

“I have got many messages from all over saying that I should remain, stay strong,” she says. “From the very beginning, I already knew that what I want to deliver for this country is what they deserve, we have every potential to transition into becoming a more developed country.”

This calm, thoughtful but forceful central banker knows all too well it is unlikely to be that simple. “We have everything going for us… but we can be derailed and disrupted if we have any form of domestic instability. I’m a very focused person, in leadership you have to have that focus so that you know what are the outcomes that you want to achieve, you have to have line of sight of what you want to achieve.”

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